Persistent Slipped By More Than 10 Per Cent On a Bland Business Outlook

Persistent Systems slipped by more than 10.50 per cent in intraday trade after the company reported its business update for Q1FY16. As per the business update on BSE announcement, Persistent is expecting a decline in revenues for the quarter ended June 30, 2015 (1QFY16) along with decline in margins. Persistent Systems said in a filing with BSE, "The weakness in our current engineering business coupled with the quarterly variability associated with our IP business, could result in marginally lower USD revenue for this quarter as compared to the previous quarter."

As per the market analysts, the company’s margins are likely to fall by 100-200 basis points. The margins are lowering because of higher visa costs, additional pressure from increased investments in S&M and R&D, and  are offset partially by rupee depreciation.

Despite of the press release, Persistent’s management is confident about a positive performance, and is expecting to acquire a few more products to grow their IP revenues. The company has recently acquired a product called Convirture which enables unified management for multiple virtualisation and cloud environment. The management too sees good earnings visibility from the new customers in the product engineering business division. 

The stock of the company was trading at Rs 645, close to its 52 week low of Rs 529. We feel that the bad news has been already discounted in its share price as the stock is down by almost 33 per cent from its 52 week high of Rs 961. Hence the retail investor should stay invested in the stock and take a decision as things  get clarified within the next few days.